DBRS Assigns Provisional Ratings to Foncaixa PYMES 5, FTA

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes issued by Foncaixa PYMES 5, FTA (the Issuer):

-- EUR 1,555.5 million Series A Notes at A (low) (sf) (the Series A Notes)
-- EUR 274.5 million Series B Notes at B (low) (sf) (the Series B Notes; together, the Notes)

The transaction is a cash flow securitisation collateralised by a portfolio of bank term loans and drawn amounts on credit lines originated by Caixabank, S.A. (the Originator) to small- and medium-sized enterprises (“SMEs”) and self-employed individuals based in Spain. As of 27 October 2014, the transaction’s provisional portfolio included 47,512 loans and credit lines to 42,476 obligors groups, totalling EUR 1,936 million. At closing, the Originator will select the final portfolio of EUR 1,830 million from the above-mentioned provisional pool.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Legal Maturity Date in September 2047. The rating on the Series B Notes addresses the ultimate payment of interest and the ultimate payment of principal payable on or before the Legal Maturity Date in September 2047.

The provisional pool exhibits low industry and obligor concentration. The top three industries based on the DBRS Industry classification are “Business Equipment & Services” (14.5% of the portfolio balance), “Building and Development” (11.6%) and “Food products” (9.5%). The top obligor and the largest ten obligor groups represent 0.8% and 3.6% of the outstanding balance, respectively. The portfolio exhibits some concentration to the region of Catalonia where the bank is headquartered. The top three regions for borrower concentrations are Catalonia, Madrid and Andalusia, representing approximately 31.7%, 11.7% and 10.8%, of the portfolio balance, respectively.

The above ratings are provisional. Final ratings will be issued upon receipt of executed versions of the governing transaction documents. To the extent that the documents and information provided by Foncaixa PYMES 5, FTA, GestiCaixa, S.G.F.T., S.A. and Caixabank, S.A. to DBRS as of this date differ from the executed versions of the governing transaction documents, DBRS may assign lower final ratings to the Notes, or may avoid assigning final ratings to the Notes altogether.

These ratings are based upon DBRS’s review of the following items:
-- The portfolio characteristics, the transaction structure, the form, and sufficiency of available credit enhancement.
-- At closing, the Series A Notes benefit from a total credit enhancement of 22.0%, which DBRS considers to be sufficient to support the A (low) (sf) rating. The Series B Notes benefit from a credit enhancement of 7%, which DBRS considers to be sufficient to support the B (low) (sf) rating. Credit enhancement is provided by subordination and the Reserve Fund. In addition, the Notes also benefit from available excess spread.
-- The Reserve Fund will be allowed to amortise after the first two years if certain conditions – relating to the performance of the portfolio and deleveraging of the transaction – are met. The Reserve Fund cannot amortise below EUR 91.5 million.
-- The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.
-- An assessment of the operational capabilities of key transaction participants.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the approved terms. Interest and principal payments on the Series A Notes will be made quarterly on the 19th day of March, June, September and December, with the first payment date on 20 March 2015.
-- The soundness of the legal structure and the presence of legal opinions that address the true sale of the assets to the trust and the non-consolidation of the special purpose vehicle, as well as consistency with the DBRS “Legal Criteria for European Structured Finance Transactions.”

DBRS determined these ratings as follows, as per the principal methodology specified below:
-- The annualised probability of default (PD) for the Originator was determined using the historical performance information supplied. As stated above, DBRS assumed an annualised PD of 2.62% for this transaction.
-- The assumed weighted-average life (WAL) of the portfolio was 2.48 years.
-- The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the target ratings.
-- The recovery rate was determined by considering the market value declines (“MVDs”) for Spain, the security level and type of the collateral. For the Series A Notes, DBRS applied the following recovery rates: 55.5% for secured loans and 16.3% for unsecured loans. For the Series B Notes, DBRS applied the following recovery rates: 71.5% for secured loans and 20.8% for unsecured loans.
-- The break-even rates for the interest rate stresses and default timings were determined using the DBRS cash flow model.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs).” Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

All DBRS methodologies can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisation in the Euro Area” at: http://www.dbrs.com/research/239786/the-effect-of-sovereign-risk-on-securitisations-in-the-euro-area.pdf

The sources of information used for this rating include the parties involved in the rating, including but not limited to the Originator, Caixabank, S.A, the Issuer and GestiCaixa S.G.F.T., S.A. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS determined key inputs used in our analysis based on historical performance data provided for the Originator and Servicer as well as analysis of the current economic environment. Further information on DBRS’s analysis of this transaction will be available in a rating report on http://www.dbrs.com or by contacting us at info@dbrs.com.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies is available on www.dbrs.com.

To assess the impact a change of the transaction parameters would have on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- Probability of default rates used: Base Case PD of 2.62%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery rates used: Base Case recovery rates of 18.2% at the A (low) (sf) stress level and 23.2% at the B (low) (sf) stress level for the Series A Notes and Series B Notes, respectively, a 10% and 20% decrease in the Base Case recovery rates.

DBRS concludes that a hypothetical increase of the Base Case PD by 20% would lead to a downgrade of the Series A Notes to BBB (high) (sf) and a hypothetical decrease of the recovery rate by 20% does not have any impact on the rating of the Series A Notes. A scenario combining both an increase in the Base Case PD by 10% and a decrease in the Base Case Recovery Rate by 10% would lead to a downgrade of the Series A Notes to A BBB (high) (sf).

Regarding the Series B Notes, a hypothetical increase of the Base Case PD by 20% would lead to a downgrade of the Series B Notes to CCC (high) (sf) and a hypothetical decrease of the Base Case Recovery Rate by 20% does not have any impact on the rating of the Series B Notes. A scenario combining both an increase in the Base Case PD by 10% and a decrease in the Base Case Recovery Rate by 10% would lead to a downgrade of the Series B Notes to CCC (high) (sf).

It should be noted that the interest rates and other parameters that would normally vary with rating level, including the recovery rates, were allowed to change as per the DBRS methodologies and criteria.

For further information on DBRS’s historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository see:
http://cerep.esma.europa.eu/cerepweb/statistics/defaults.xhtml.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Carlos Silva
Initial Rating Date: 20 November 2014
Initial Rating Committee Chair: Jerry Van Koolbergen

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- Legal Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for U.S. and European Structured Credit
-- Operational Risk Assessment for European Structure Finance Servicers
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Rating Methodology for CLOs and CDOs of Large Corporate Credit
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda